No Recoverable Loss – Lessons from Afan Valley Ltd v Lupton Fawcett LLP
Introduction
In Afan Valley Ltd v Lupton Fawcett LLP1, the Court of Appeal upheld the High Court’s decision to strike out a professional negligence claim against solicitors.
Whilst the case related to advice on an investment scheme, the decision is of interest to professionals generally as an example of the Manchester Building Society test in action and an illustration of the scope for professionals to seek to raise valuable defences based on a lack of nexus between the duty and the alleged loss.
Background
Afan Valley Ltd was one of 43 insolvent special purpose vehicle companies (the “SPVs”) used to promote investment schemes offering long leasehold interests in property (the “Schemes”). Between 2014 and 2017, the Schemes raised approximately £68.2 million from investors in the UK and overseas.
A firm of solicitors, Lupton Fawcett LLP, had been retained to advise the SPVs as to whether the Schemes were collective investment schemes (“CISs”) for the purposes of the Financial Services and Markets Act 2000 (“FSMA”) and therefore needed to be authorised by the Financial Conduct Authority.
The SPVs brought a professional negligence claim against Lupton Fawcett, arguing that the solicitors negligently failed to advise that the Schemes were, or carried a real risk of being, CISs. It was alleged that this exposed the SPVs to claims from investors under FMSA for repayment of the monies invested in the SPVs. Those liabilities were claimed as loss at first instance.
Lupton Fawcett successfully applied for the claim to be struck out and/or summarily dismissed on the basis that no actual loss had been suffered by the SPVs because they had obtained an asset (i.e. the property interests) of equal value to the loss claimed (i.e. the obligation to repay those investments) (the “£ in, £ out argument”). At first instance, Mr Justice Sheldon also accepted that the losses were not attributable to the allegedly negligently advice.
The SPVs appealed, and in doing so sought to assert additional heads of loss said to fall outside the ‘£ in, £ out’ principle, namely: (1) commissions and legal and professional fees paid as a percentage of the investments received; (2) outlay expenditure made with a view to the Schemes being medium-long term investments; and (3) further compensation payable to the investors under the terms of their investment in the SPVs, pursuant to section 26(b) of FSMA.
The Court of Appeal decision
The Court of Appeal unanimously rejected the appeal, with Lord Justice Nugee giving the leading judgement, The Court found that there was no recoverable loss beyond the ‘£ in, £ out’ analysis that fell within the scope of the solicitors’ duty of care.
First, the additional losses added by the SPVs in their appeal were held to fall outside the scope of the solicitors’ duty. Applying the structured framework set out in Manchester Building Society2, the Court defined the scope of Lupton Fawcett’s duty as being limited to “the impact of FSMA if the schemes about which [Lupton Fawcett] was advising, and seeking advice from counsel about, were CISs”3.
The Court rejected the suggestion that there was sufficient nexus between Lupton Fawcett’s duty and (1) commissions and fees paid out of the monies invested or (2) long-term investment outlays, finding that those losses “were quite unconnected with the consequences under FSMA of the Schemes being CISs”. While the Court found that, in principle, there was sufficient nexus between the alleged prospective compensation claims under section 26(2)(b) FSMA and Lupton Fawcett’s duty, that loss was not attributable to the alleged negligence. Crucially, for all the additional heads of loss asserted, the Court concluded that nothing about the investors’ claims or the collapse of the Schemes would have been different had Lupton Fawcett’s advice been correct.4 Therefore, any losses flowing from that collapse fell outside the scope of the solicitors’ duty.
Second, having rejected the claims for additional heads of losses, the Court upheld the first instance decision based on the “£ in, £ out” analysis: i.e. that there was no recoverable loss within the scope of the solicitors’ duty of care because the SPVs’ obligations to repay approximately £68 million to investors were matched by equivalent assets acquired using the investors’ cash.
Conclusion
For professionals advising on investment schemes (and indeed other professionals), this case provides reassurance that liability will closely follow the particular risk or risks that their advice was intended to address, rather than issues relating to the success, or other commercial considerations, of the scheme, transaction, or matter in question.
We understand that Afan Valley Ltd have sought permission to appeal this judgement to the Supreme Court, so this may be a case to follow closely.
1 Afan Valley Ltd and others v Lupton Fawcett LLP [2026] EWCA Civ 2
2 Manchester Building Society v Grant Thornton LLP [2021] UKSC 20
3 Afan Valley Ltd and others v Lupton Fawcett LLP [2026] EWCA Civ 2 [61-62]
4 Ibid [70]
